The Austrian government - who have heretofore plied Heta with €5.5 billion - held an emergency meeting to discuss the development. They concluded that they would not hand over "a single euro" to the...

Double Dip

May existing home sales plunged far below expectations, coming in at an annualized -2.2% rate, compared to consensus of 6.0%, and a revised 8% in April. This is the second worst monthly drop in history, and shows just how very wrong economists are, and how they will all have to revise their outlooks lower, for all macro indicators including GDP. The plunge occurred even despite near record low 30 year mortgage rates: the Freddie 30-year, conventional, fixed-rate mortgage fell to 4.89 percent in May from 5.10 percent in April; the rate was 4.86 percent in May 2009. The push forward effect of the administration's various subsidies is now over and a double dip is likely now inevitable unless yet another stimulus plan is implemented. There is nothing quite like the administration finding a scapegoat du jour: first it was snow in winter, then hot weather in the spring, now it is the oil spill: "Florida and Louisiana, also impacted by the oil spill, have the highest percentage of homes that require flood insurance."

The ECRI weekly leading index is continuing its accelerating dive, and is now well into negative territory, hitting -5.7 for the past week: a 2.2 decline from the prior week. Here is why, as David Rosenberg, this is a critical indicator, and why we may have just 4.3 more points to go before the critical -10 threshold: "It is one thing to slip to or fractionally below the zero line, but a -3.5% reading has only sent off two head-fakes in the past, while accurately foreshadowing seven recessions — with a three month lag. Keep your eye on the -10 threshold, for at that level, the economy has gone into recession … only 100% of the time (42 years of data)." At this rate of decline -10 will be taken out in the first week of July.

Can we stop all discussion that we have avoided a double dip already? Initial claims came in at 472,000, up 12,000, compared to an expectation of 450,000. Last week was revised from 456,000 to 460,000. Dear Joe Biden - was the economic recovery in unemployment pushed back to 2011? Did companies receive the memo to fire, yet miss the other one, with the much more critical rhyming verb? Never fear - the BLS has an explanation for everything, and the surge in claims was presumably not only predictable, it was expected, and was blamed on the fact that there was a federal holiday in the prior week:yet somehow the consensus totally ignored this oh so obvious tidbit. Elsewhere the CPI was once again deflationary: CPI came in at -0.2%, and CPI ex-food and energy barely posted a heartbeat at 0.1%. Futures now retracing pretty much all EUR-driven gains. But not gold.

Nouriel Roubini was on CNBC earlier, sparring with Mohamed El-Erian, providing a very indecisive prediction about the future of the US economy. The RGE economist who previously would say the depression is only just starting, is unwilling to commit to a prediction of a double dip for the US, and barely do so for Europe. His anticipation of sub 2% GDP growth in H2 is... higher than that of perpetually optimistic Goldman Sachs, which sees 1.5% H2 growth. So much for swinging for the fences. But when existing subscribers expect to a given set of data, it is quite understandable. It is, nonetheless, good to see that the Doctor read the ConvergEx report we posted some time ago indicating how the Fed, and everyone else calling for a projected reduction in unemployment, are pathological liars: "With 130.2 million people presently employed, that works out to an addition of 385,000 jobs in each month, May through December – and that’s just to reach 9.4%. The low-end Fed projection is 9.3%. Considering the economy added 290,000 jobs (more on this later) last month, 385,000 seems a touch ambitious to say the least." And this does not include the atrocious May report, which means the economy has to add over 400k real private, non-census jobs a month. This is impossible. At least Roubini admits: "eventually even the US can't outrun a trillion budget deficit for the next ten years." To all speculators: good luck timing the turning point into the last crash. An oddly unsatisyfing clip, but the head to head between Roubini and El-Erian 5 minutes into the clip is amusing: Keynesian vs. non-Keynesian.

Last week, we pointed out that the ECRI Leading Index dipped to negative for the first time in over a year, which on a historical basis tends to predict a recession with surprising regularity. Today, David Rosenberg takes this data and expands on his views of the probability of a double dip.An interesting observation: when the ECRI drops to -10 (from the current -3.5, and plunging at the fastest rate in history), the economy has gone into a recession 100% of the time, based on 42 years of data. At the current rate of collapse, this means in two months we should know with certainty if the double dip has now arrived.

The Moody’s/REAL All Property Type Aggregate Index measured a 0.5% price decline in March, marking a second month of falling values after a slight rebound reported earlier this year. The index now stands at 111.16, down 24.9% from a year ago and 40.5% from two years ago. Prices peaked in October 2007, and at their lowest point thus far in the downturn (October 2009) they had fallen 43.7%. As of the end of March, commercial property prices are down 42.1% from the peak.

At this juncture of the crisis, there are only two choices: 1) do nothing and let the world sink into a deflationary hellhole or 2) do anything it takes to shore up the global financial system and look to restructure debt as the world economic recovery gains traction. I believe the Fed and the ECB will opt for the second choice.

The double dip in housing is getting worse by the month. After hitting a nearly 6.6 million in existing home sales in late 2009, the number has now plunged to 5.02 million, a decline of 0.9% sequentially, and a major drop from the artificially induced peak. Sales for single-family homes were down and were up for condos and co-ops, indicating a preference for smaller, cheaper units among a population concerned with record unemployment and expiring homebuyer taxes. The number came on top of expectations of 4.98 million, with the range being from 4.75 million to 5.2 million units. Sales in the Northeast and Midwast improved slightly, even as sales in the South and recently bubble West declined. Yet the biggest stunner was the months of supply on market which jumped by a 20 year high, from 7.8 months to 8.6 months.

My favorite party boy economist, Nouriel Roubini, just came out with his analysis for the second half and he notes that we may be heading toward a double-dip recession. Too much negative news, he frets. I have been saying this for some time.

After a third sequential decline in unadjusted Case-Shiller housing prices, is it ok to come out of a contrarian shell and proclaim the government-subsidized home price appreciation rally dead? Afdter the unadjusted Composite-20 reading peaked at 146.7 in September, the index has slowly declined for 3 months in a row and is now at 145.9. The only good thing one can say is that the rate of decline has not accelerated. However, with just over a month left on MBS QE, we are not very hopeful for a second V-recovery to appear in home prices any time soon.

Initial claims just made a negative U-turn and posted their first weekly increase since the beneficial inflection point. After new home sales and NAHB, is the initial claims double dip next? This week's number of 480,000 was 25,000 worse than expected, and 8,000 thousand worse than last week's 472,000. The 4-week average rose to 11,750 to 468,750. According to the Labor Department this was a straightforward report with "nothing unusual" and no states estimated. Unadjusted claims rose 28,234 to 530,405. Continuing claims increased by 2,000 on a SA basis, to 4.6 million and by 62,784 NSA to 5.7 million. EUCs surged once again to 281,442 for a new total of 5,632,219. Extended benefits claims fell 39,129 to 222,833 as ever increasing numbers of people roll off extended benefit eligibility.

The NAHB reported its December housing market index, which came in at 15, missing expectations of a rebound from November's reading of 16, and is now at the low levels last seen in June. The double dip, at least in perceptions of what is happening to the housing market is here, and follows the recent housing starts inflection point.

Without doubt the two biggest issues before the US economy are the threat of a double dip recession and what happens when the massive liquidity pump is i) stopped and ii) put in reverse. And of the key macro economic indicators, deflation is by far the biggest bogeyman (and wildcard). Even in the context of so-called better than expected economic data, i.e., the growth in GDP, a more exhaustive dig through the deflator for gross domestic purchases reveals that deflation has still firmly gripped the economy. Yet price perceptions, which have an impact on the consumer saving and spending rate, while critical are merely one of the numerous indicators that one has to keep an eye on. The group of the four horsemen of a depression also includes overall systemic leverage, the availability of credit, and unemployment.